My SIL had an irrevocable first party SNT. Upon her death her daughter received the property in a life estate as the tenant. When her daughter, the tenant, passes away, does the remainderman get a step up basis from her daughter or does the basis go back to the original price my SIL paid for the house?
Also, the tenant is disabled and on Medi-cal. When she passes will DHCS do an estate recovery on the property?
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When a life tenant passes, anyone who takes the remainder receives a basis that is the fair market value on the date of death of the life tenant.
See https://www.law.cornell.edu/uscode/text/26/1014
The basis would not be a carryover basis (i.e., would not "go back" to the original price paid by the SIL).
@lorims3kds wroteAlso, the tenant is disabled and on Medi-cal. When she passes will DHCS do an estate recovery on the property?
I'm not familiar with Medi-Cal or DHCS but, generally, once a life tenant passes that estate ends and nothing of value is left with respect to the life tenant.
Creditors would essentially be unable to attach nothing since there is nothing to attach. However, in the result may be different if there was fraud involved in the initial transfer from the owner in severalty to the life tenant.
Regardless, you might want to consider a consultation with local legal counsel.
Thank you for your response. No fraud was involved, it was drawn up by an estate attorney.
Thank you.
Would there still be a step-up in basis with the new IRS rules regarding irrevocable trusts?
@justme68 wrote:
Would there still be a step-up in basis with the new IRS rules regarding irrevocable trusts?
Rev. Rul. 2023-2
See https://www.irs.gov/pub/irs-drop/rr-23-02.pdf
If the grantor makes a completed gift to an irrevocable trust then, generally, there will be no step up in basis at the death of the grantor.
This is not really new since an asset must be included in the decedent's estate in order for the asset to get a step up in basis.
I apologize, I am confused, would the remainder man get the step-up basis or not?
Thanks for your response.
@justme68 wrote:
I apologize, I am confused, would the remainder man get the step-up basis or not?
A remainder typically follows a life estate and a remainderman does get a stepped-up basis.
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